Huawei, ZTE should be kept from US, draft Congress report says

China's top telecoms gear makers should be shut out of the US market as potential Chinese state influence on them poses a security threat, the US House of Representatives' Intelligence Committee said in a draft of a report to be released on Monday.

US intelligence must stay focused on efforts by Huawei Technologies Co Ltd and ZTE Corp to expand in the United States, and tell the private sector as much as possible about the purported espionage threat, the panel leaders said, based on their 11-month investigation of the two firms

Employee-owned and unlisted Huawei is the world's second-biggest maker of routers, switches and telecoms equipment by revenue after Sweden's Ericsson. ZTE ranks fifth. In the global mobile phone sector, ZTE is fourth and Huawei sixth. Huawei generated around 4 percent of its group sales from the United States, while ZTE's U.S. revenues made up 2-3 percent of its overall figure. The bulk of both companies' US sales comes from selling handsets through US carriers such as Verizon, Sprint and T-Mobile USA.

"The impact will be quite limited if the report is referring just to telecoms equipment, but it's another story if handsets are included as well," said Huang Leping, an analyst at Nomura Securities. "Huawei and ZTE handsets have been consistently gaining market share in the United States."

In the U.S. handsets market where Apple Inc and Samsung Electronics dominate, ZTE ranks sixth and Huawei eighth, according to industry figures.